48 Middle East & Africa The Economist May 7th 2022
Africaneconomics
The paradox of untapped riches
G
hanahasacuriousproblem:itpro
ducestoomuchelectricity.Underthe
termsofopaquecontractswithgenerating
companies,thegovernmenthasbeenpay
ingover$500mayearforpower thatis
neverused.Thatisodd,becausethecoun
tryishardlyawashwithenergy.Theaver
ageGhanaianusesasmuchelectricityina
yearasanAmericandoesina fortnight.Al
thoughaccesshasexpandedrapidly,more
thana quarterofruralhouseholdsarenot
connectedtothegrid.
Thebiggestobstacletoeconomicdevel
opmentisofteninadequateresources.But
notalways.In Ghana, generating power
hasprovedmucheasierthandistributing
it.So,too,inseveraleastAfricancountries,
includingUganda,whereinstalledcapaci
ty is nearly double peak demand—and
yourcorrespondentsitswritingthisina
blackout.Electricityisnottheonlyindus
trywhereresourcesaresometimesplenti
ful,andneedsareobvious,butdemand
doesnotjoinupwithsupply.Callit thepar
adox of untapped riches: surplus and
shortage,existingsidebyside.
Seekinghide
Thisriddleismostapparentinpartsofthe
economywherethemarketoughttolink
upsupplyanddemand.Yetinmanycases
lorriessitidleonroadsides,evenastraders
cannotfindvehiclestocarrytheirgoods.
Or factories run short of supplieseven
thoughtheresourcestheyneedseemplen
tiful. Ethiopia has more livestock than
anywhereelseinAfricaandthetanneries
toturnhidesintoleather.Yetsomeofits
shoeandglovemakersimportleatherfrom
asfarafield asChina.“Mostoftheraw
hidesandskinsaresuppliedfromhouse
holdbackyardslaughter,”explainsTesfaye
BirhanuoftheLeatherIndustryDevelop
mentInstituteinAddisAbaba,thecapital.
Thesecanberuinedbybacteriawithinsix
hoursofslaughterif nottreatedproperly.
Even Aliko Dangote, Africa’s richest
man,cannotescapetheparadox.In 2016
his conglomerate opened a tomatopro
cessingplantinnorthernNigeriatoturn
thecountry’svastcropoffreshfruit—half
ofwhichrotseachyearbecause ofpoor
handling and storage—into the tinned
paste that is currently imported. But a
shortageoftomatoesforcedthefactoryto
shutdown withinmonths because ofa
cropfailurecausedbya voraciousmoth.
Severalyearslaterthefactorywasstillop
eratingata fractionofitscapacitybecause
ofproblemsingettingenoughtomatoes of
therightquality.
Adifferentvariationofthisparadox al
soarisesinstatemanagedmarkets, like
electricity,wheregovernmentshave strug
gledtoforecastsupplyanddemand, and to
buildtheinfrastructurelinkingthe two. It
alsoappears withingovernmentinstitu
tionsthemselves.Becauseofpoor man
agement,healthministriesinAfrica fail to
useabouta fifthofthebudgettheyare allo
cated,despitehospitalsrunningshort of
medicines.Theunderspendissimilar in
agricultureministries,sometimesfor the
simplereasonthatmoneyforfarm inputs
such as subsidised fertiliser is released
aftercropshavebeenplanted.
Anothermismatchisininfrastructure.
Governments and investors often have
moneytospend.Anddemandfor roads,
portsandthelikecontinuestogrow. But
bankable projects—thelinkbetween the
two—areinshortsupply.“Thereis fund
ing,a largepipeline,anda needfor spend
ing,butnotenoughmoneyisbeing spent,”
argueanalystsatMcKinsey,a consultancy.
Theyreckon80%ofAfricaninfrastructure
projectsfailatthefeasibilityandbusiness
planstage;fewerthan10%reachthe point
offunding.Evenhighprofileschemes can
stutter. By2020, atthe endofthe first
eightyearphaseoftheProgramme for In
frastructureDevelopmentinAfrica, an ini
tiative led by the African Development
Bank, construction had started on fewer
than half the planned projects.
In a survey by the European Investment
Bank, more than 60% of African banks say
that a lack of “bankable” projects signifi
cantly constrains their lending to small
businesses; a similar proportion of entre
preneurs tell World Bank researchers that
they cannot get a loan when they need one.
What do these diverse examples have in
common? One obvious theme is broken
connections—quite literally, in the case of
power grids. A quarter of the electricity
that is sold in Ghana is lost due to derelict
distribution infrastructure and theft, esti
mates Theo Acheampong, an energy econ
omist at Aberdeen University. Bad roads
and grasping middlemen stand between
farmers and buyers.
Sometimes the missing link is informa
tion, such as the credit histories that
would help banks assess the riskiness of
wouldbe borrowers. A second lesson is
that quality trumps quantity. Yes, Ethiopia
has a lot of cows, but they need to be kept
healthy and slaughtered skilfully if their
hides are to be turned into brogues.
A few rotten tomatoes
None of these obstacles is insurmount
able. Farmerline, a Ghanaian firm, uses
technology to connect farmers, their sup
pliers, lorry drivers, warehouses and buy
ers. “We know how much food people are
growing ahead of time, we know the loca
tion,” says Alloysius Attah, its cofounder.
“It gives us an edge on how we plan our
supply chain.” Tomato Jos, a startup in cen
tral Nigeria, is trying to crack the tomato
paste conundrum. It spent years talking to
and then training farmers before its first
tin rolled off the production line. “It’s not
as simple as just setting up a factory and
mopping up supply,” says Mira Mehta, its
American founder. “Roads are horrible,
market information is bad, tomatoes are
perishable. You have to actually control
your supply chain.”
Unclogging bottlenecks is often un
glamorous, costly work that businesses are
loth to do on their own because it will ben
efit freeriding competitors. “There has to
be an intentional effort from government
to support the market,” says Ed Brown of
the African Centre for Economic Transfor
mation, a thinktank in Accra, Ghana’s cap
ital. In farming that may mean enforcing
standards, or providing support and credit
to help build up a whole supply chain. Mr
Brown notes the success of Ethiopia and
Kenya in developing cool storage at air
ports, which allows farmers to export flow
ers and fresh vegetables to Europe.
Economists have long known that re
sources alone do not make a country rich.
African economies alreadyhavemany of
the pieces of the growth jigsaw.What mat
ters is how they slot together.n
K AMPALA
Why resources sometimes go unused, even where they are badly needed
When life hands you tomatoes